ISLAMIC FINANCE FOR STIMULATING CONSUMPTION IN CHINA – AN ANALYSIS

Since the 1970s, Islamic finance has evolved, prompting closer evaluation of its successes and challenges in a changing world. A key focus is on domestic consumption, crucial for economic growth in Islamic contexts where consumption and income distribution are closely linked. However, Islamic economic models often mimic mainstream approaches and overlook shifting societal values. Islamic consumer theory differs from conventional economics, especially regarding human desires, behavior, and resource constraints. Some Islamic economists reject the idea of scarcity, despite inconsistencies in their broader frameworks. Islamic economics classifies needs into three levels—essential (daruriyat), enhancements (hajiyat), and social recognition (tahsiniyat)—which reflect evolving standards of living but not fundamental changes in needs. A more subjective, individual-based approach to consumption is encouraged, rather than rigid external standards. China’s consumption challenges could benefit from Islamic finance principles. Issues like high healthcare costs, savings driven by demographic shifts, and limited access to social services strain households, particularly the poor and rural migrants. Regressive fiscal policies, local government deficits, and demographic changes such as an ageing population and falling property values further suppress consumption. Although reforms are underway, they are hindered by inequality, the hukou system, and political resistance. Islamic finance-aligned reforms—targeting fiscal policy, social security, and land rights—could enhance consumption, but overcoming institutional barriers remains key.